(Calculating operating cash flows) Assume that a new project will annually generate revenues of $2,000,000 for the next 3 years. Cash expenses including both fixed and variable costs will be $800,000 per year, bonus depreciation will be $1,500,000 in year 1, and the firm has enough income in other areas to offset any tax losses that might occur in year 1. In addition, let's assume that the firm's marginal tax rate is 23 percent. Calculate the operating cash flows in years 1 through 3. What are the firm's operating cash flows in year 1? $ (Round to the nearest dollar). What are the firm's operating cash flows in years 2 and 3? $(Round to the nearest dollar) A

(Calculating operating cash flows) Assume that a new project will annually generate revenues of $2,000,000 for the next 3 years. Cash expenses including both fixed and variable costs will be $800,000 per year, bonus depreciation will be $1,500,000 in year 1, and the firm has enough income in other areas to offset any tax losses that might occur in year 1. In addition, let's assume that the firm's marginal tax rate is 23 percent. Calculate the operating cash flows in years 1 through 3. What are the firm's operating cash flows in year 1? $ (Round to the nearest dollar). What are the firm's operating cash flows in years 2 and 3? $(Round to the nearest dollar) A

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 21P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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Your division is considering two investment projects, each of which requires an up-front expenditure of 25 million. You estimate that the cost of capital is 10% and that the investments will produce the following after-tax cash flows (in millions of dollars): a. What is the regular payback period for each of the projects? b. What is the discounted payback period for each of the projects? c. If the two projects are independent and the cost of capital is 10%, which project or projects should the firm undertake? d. If the two projects are mutually exclusive and the cost of capital is 5%, which project should the firm undertake? e. If the two projects are mutually exclusive and the cost of capital is 15%, which project should the firm undertake? f. What is the crossover rate? g. If the cost of capital is 10%, what is the modified IRR (MIRR) of each project?
A project is expected to result in an $4 million increase in sales and $2 million increase in expenses, per year. What is the annual incremental after-tax cash flow (OCF) associated with the project if the firm's tax rate is 32% and the incremental depreciation is $1 million per year. Enter answer in dollars, rounded to the nearest dollar.
What is the NPV of project D? Assume that the firm requires a minimum after-tax return of 8% on investment. Project D costs $5,000 and will generate sales of $4,000 each year for 5 years. The cash expenditures will be $1,500 per year. The firm uses straight-line depreciation with an estimated salvage value of $500 and has a tax rate of 25%. (2) What is the book rate of return based on the average book value? (Round your answer to 2 decimal places.)
A firm is considering taking a project that will produce $12 million of revenue per year. Cash expenses will be $5 million, and depreciation expenses will be $1 million per year. If the firm takes that project, then it will reduce the cash revenues of an existing project by $3 million. What is the free cash flow on the project, per year, if the firm uses a 40 percent marginal tax rate? O$2.8 million O $2.4 million 0 $4.6 million $3.4 million
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,300 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 10%. Ignore inflation.a. Calculate project NPV for each company. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) b. What is the IRR of the after-tax cash flows for each company? (Do not round intermediate calculations. Enter your answers as a percent rounded to 1 decimal places.)
A firm is considering a project that will generate perpetual after-tax cash flows of $16,000 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 6 percent on an after-tax basis. The firm's D/E ratio is 0.6. What is the most the firm can pay for the project and still earn its required return? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar. Maximum the firm can pay
Problem 6-29 Mutually exclusive investments and project lives As a result of improvements in product engineering, United Automation is able to sell one of its two milling machines. Both machines perform the same function but differ in age. The newer machine could be sold today for $78,500. Its operating costs are $23,800 a year, but at the end of five years, the machine will require a $18,100 overhaul (which is tax deductible). Thereafter, operating costs will be $31,900 until the machine is finally sold in year 10 for $7,850. The older machine could be sold today for $26,900. If it is kept, it will need an immediate $29,500 (tax-deductible) overhaul. Thereafter, operating costs will be $37,900 a year until the machine is finally sold in year 5 for $7,850. Both machines are fully depreciated for tax purposes. The company pays tax at 21%. Cash flows have been forecasted in real terms. The real cost of capital is 11%. a. Calculate the equivalent annual costs for selling the new machine…
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 9%. Ignore inflation. A. Calculate project NPV for each company. B. What is the IRR of the after-tax cash flows for each company?
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $26,700 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 9%. Ignore inflation. a. Calculate project NPV for each company. b. What is the IRR of the after-tax cash flows for each company? Complete this question by entering your answers in the tabs below. Required A Required B Calculate project NPV for each company. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. Company A Company B NPV
A project requires an initial investment of $100,000 and is expected to produce a cash inflow before tax of $27,900 per year for five years. Company A has substantial accumulated tax losses and is unlikely to pay taxes in the foreseeable future. Company B pays corporate taxes at a rate of 21% and can claim 100% bonus depreciation on the investment. Suppose the opportunity cost of capital is 11%. Ignore inflation.a. Calculate project NPV for each company. (
A firm is considering a project that will generate perpetual after-tax cash flows of $16,500 per year beginning next year. The project has the same risk as the firm's overall operations and must be financed externally. Equity flotation costs 14 percent and debt issues cost 3 percent on an after - tax basis. The firm's D/E ratio is 0.5. What is the most the firm can pay for the project and still earn its required return?
(Ignore income taxes in this problem.) Your Company is considering an investment in a project that will have a three-year life. The project will provide a 4% internal rate of return and is expected to have a $40,000 cash inflow the first year and a $0 cash inflow in the second year, and $50,000 cash inflow in the third year. What investment is required in the project?